Baar Company is a manufacturing firm that uses job order costing. The company’s inventory balances were as follows atthe beginning and end of the year:
|
Beginning Balance |
Ending Balance |
|
|
Raw materials |
$26,000 |
$20,000 |
|
Work in process |
$71,000 |
$53,000 |
|
Finished goods |
$66,000 |
$81,000 |
The company applies overhead to jobs using a predetermined overhead rate based on machine hours. At the beginning of the year, the company estimated that it would work 44,000 machine hours and incurs $176,000 in manufacturing overhead cost. The following transactions were recorded for the year:
- Raw materials were purchased, $459,000.
· Raw materials were requisitioned for use in production, $465,000 ($431,000 direct and $34,000 indirect).
· The following employee costs were incurred: direct labor, $296,000; indirect labor, $63,000; and administrative salaries, $157,000.
- Selling costs, $134,000.
- Factory utility costs, $14,000.
· Depreciation for the year was $119,000 of which $114,000 is related to factory operations and $5,000 is related to selling and administrative activities.
· Manufacturing overhead was applied to jobs. The actual level of activity for the year was 47,000 machine hours.
- Sales for the year totaled $1,287,000
Required:
a. Prepare a schedule of cost of goods manufactured in good form.
b. Was the overhead under or over applied? By how much?
c. Prepare an income statement for the year in good form. The company closes any under or over applied overhead to Cost of Goods Sold.